February 25 2010 04:02PM
Daryl Katz has been kicking his public relations campaign on behalf of a new arena into high gear. Not long after arranging for a radio interview with employee Bob Stauffer, Katz has launched a new website and has produced the YouTube video above (The Oilers new motto: “We love new media!”).
There are, however some glitches. I don’t have a lot to say about the video posted at the top of the article, except that I find the entire Katz PR campaign to be heavy on grandiloquence and awfully light on detail. With that in mind, I thought I might help by flushing out at least one part of the picture.
In the video, Katz refers to Los Angeles, San Diego, Columbus and Indianapolis as cities that have seen their downtown revitalized by a new arena. He does not, however, go into details as to how those arenas were financed.
The Staples Centre in Los Angeles is owned by AEG – the same company Katz has hired as advisors - and the really interesting thing about that arena is that it was mostly paid for by private investors. According to ballparks.com, just a hair under 85% of the money for the arena came from the tenants of the arena, with the city chipping in less than $60 million. That’s because investors saw it as “a risk worth taking.”
It’s a similar story in Columbus, where Nationwide Arena was built entirely by private funding after citizens rejected a 0.5% increase in sales taxes to pay for it. Describing the arena, one Blue Jackets’ season ticket holder called it “a lesson for those who insist sports stadiums must be built entirely at taxpayer expense.”
That still leaves Lucas Oil Stadium in Indianapolis and Petco Park in San Diego as examples of arenas built largely using public funds. We might assume, based on Katz’s tone and without the benefit of five minutes and Google that these two projects have been great successes and that the cities which built them have reaped nothing but benefits.
Take, for instance, this charming story out of Indianapolis. I’ll quote just two passages:
Taxpayers in Indiana may already be on the hook for a financial bailout of Lucas Oil Stadium, the new home of the Indianapolis Colts of the National Football League and reputedly the most heavily subsidized professional sports stadium in the nation.
The funny thing about that paragraph? The stadium opened in August of 2008, meaning that less than two years after coughing up the vast majority of the $720 million required to build it, the city is already looking at bailing out the arena.
The financial picture grew even bleaker in September, when CIB officials announced the cost of running the stadium would be $20 million a year…. CIB (the management group) is tapping into a $25 million reserve fund while working to find a solution before the fund dries up in 2010.
CIB Chairman Bob Grand told the Indianapolis Star in September, “We’re bleeding cash right now, absolutely.”
While Indianapolis Colts owner Jim Irsay was basically able to pay for his entire contribution to the project by selling the naming rights, the public money was raised by hiking taxes and taking on loans – and those tax increases haven’t been enough. The good news for sports fans is that the Colts make low rent payments and keep the vast majority of arena revenue, so while the city bleeds red ink they’re doing just fine.
Petco Park hasn’t been a disaster, but things haven’t gone smoothly either. The city is on the hook not just for loan repayments, but also for a portion of the operating costs, which drain millions every year; estimate place the city’s losses at between $9.0 and $19.0 million annually. Litigation against the arena (see this Berkeley article) caused a long and difficult battle which the city finally won after the arena had been delayed for two years. The city of San Diego itself has faced a massive financial crisis and saw it’s credit rating suspended by S&P; the expenditure on the arena was a contributing factor. City officials misled the public on the true cost of the stadium as well as other matters (five would eventually be charged with fraud). Meanwhile, the investment in the area surrounding the arena paid off handsomely for owner Padres’ owner John Moores. Vladimir Kogan, who is currently writing a book on San Diego politics, explained the situation well in an interview last month:
True, there was a lot of investment downtown, but all that investment provided benefits that were all private benefits. John Moores of JMI spent a billion dollars, but it also came with the ability to shape what happened downtown. They got essentially free reign to shape land-use policy downtown any way they wanted in order for them to maximize profits.
The risk was public risk. The rewards were private rewards. While the city did benefit in the end, there’s no question that Padres’ ownership benefited even more, all while risking more (one-third the cost of the arena, plus investment in the area around it) than Katz has proposed to.
This is why I’m skeptical about the arena proposal. We have yet to see details, only vague generalities and when we take a closer look at those, as we have here, things look much less favourable. I think it’s remarkable that of the four examples Katz provides to support his case, two were built with a much higher percentage of private investment, and of the two built along the lines Katz proposes one was a financial catastrophe and the other has been at best a debatable success. They aren’t the sort of examples I’d use, unless I strongly suspected that nobody was going to bother looking into them.